Six elements of a model procurement function
Long term cost savings, continual improvement and business innovation are three major contributions that a good procurement function can make to an organisation.
And if there’s commitment across the enterprise to develop procurement into more than a purchasing tool, the discipline has the power to become a springboard to long term growth, innovation and sustainability for the whole business.
So what makes a model procurement function? Here are six pieces of advice from the professionals on the elements that can combine to create one:
1. Recruit the best people
Talent is as important in procurement as it is anywhere else, according to Raconteur. However procurement can sometimes be regarded as less glamorous than finance or marketing and it can also face a fight for the best employees.
Changing the way people view procurement and helping them understand its potential is essential. Recruiters can start by communicating to potential employees the scope and potentially exciting elements of the role. Collaboration with colleagues, suppliers and partners, opportunities to innovate and to pursue sustainable practices are just a few factors that can be highlighted.
While the right qualifications and evidence of learning is always important, looking for soft skills could be just as key to ultimate success. Not only do people need to communicate with colleagues around the business and with suppliers, they may be managing change in the months and years to come, making empathy, intuition and people skills pretty vital.
2. Ensure cross-team understanding
The ability to link the work that procurement does with the needs and aspirations of the rest of the business is clear. It’s important that the function ensures that colleagues across the organisation know what it does and shares its success stories.
Banner’s article on cross team procurement mentions the benefits of shadowing other teams to understand how they operate and where the pressures lie. Other qualities such as the ability to share information, compromise and work together to plan for eventualities are also fundamental.
In an accenture interview with senior management from Lenovo Group, they explain that integration of procurement into business strategy is achieved through a sourcing unit that works with R&D during design periods and seeks out potential suppliers to involve in development at that early stage. Teams work across different product portfolios led by senior product managers. Each team has weekly meetings, management oversight and regular audits of project progress.
3. Review fully before set-up
It’s said that procurement functions are sometimes put in place relatively quickly with the aim of making savings as quickly as possible. However, insight and technology company CEB Global suggests that without a full review at the very outset, important things can be missed, such as spend profile, the discipline of that spend and leadership understanding of procurement capabilities.
By running a proper review at the start, organisations will be more successful in tailoring the procurement function far more accurately to their needs. Creating a short and long term strategy and identifying KPIs for procurement before it spins into action could make all the difference.
4. Ensure there’s a detailed spend map
A detailed spend map can be the driver for sustainable savings across a business. According to Ernst & Young‘s ‘5 things to expect from a procurement function’ report, procurement needs to engage with the wider organisation to understand how and where costs could be reduced across the value chain. Without this, there can be the risk of undiscovered savings, commercial decisions made in isolation and old and archaic processes undermining progress.
This spend map can also be developed through contract management and supplier relationship management. Measuring supplier value is not just tracking performance but identifying ways for all parties to improve throughout the life of the contract.
5. Get a balance between long and short term savings
Achieving savings over the longer term, as well as immediate future, shouldn’t have to be the sole responsibility of procurement, but it should work with other business units to drive awareness of longer range goals and ensure that initiatives to achieve this are implemented as planned.
Working on an understanding of total cost of ownership could be one important target, with procurement ensuring that colleagues see the bigger picture and develop practices to enable better long term savings.
6. Work with facts
Taking a fresh approach to processes and dealing with the facts, rather than allowing beliefs, emotions or politics to prevail will ensure the procurement function ultimately delivers the best results.
At category management level, Forbes suggests that a cross functional team of procurement, operations, R&D and management should work collaboratively to objectively review how categories can be managed moving forwards. Working with existing capabilities and synergies, an open approach should be taken to maximising or pooling resources. The right level of management should be assigned to each category and responsibilities for making decisions assigned at appropriate levels and described fully to each stakeholder in the process.